In April, the U.S. economy added 175,000 jobs, marking the lowest monthly increase so far this year, yet still aligning with an expanding economy, albeit at a slower pace compared to the previous year. As economists look forward to the Labor Department’s May jobs report, due this Friday, they predict a modest increase of 190,000 jobs with the unemployment rate holding steady at 3.9%.
“The labor market is still pretty strong,” says Allison Kaminaga, an economics professor at Bryant University. “Unemployment picked up and job growth did slow but 3.9 is still pretty strong by historical standards.” Despite these signs of a robust labor market, investors and economists are closely monitoring for any indications that it might be cooling, especially given broader economic indicators suggesting a slowdown, including last week’s revised 1.3% growth in gross domestic product (GDP) for the first quarter.
A decelerating economy could potentially prompt the Federal Reserve to lower interest rates, which would be a relief to consumers grappling with high prices. However, there is also concern that a slowdown and reduced consumer spending might lead to a recession later this year or early next.
This week is pivotal for economic news, with several reports on the labor market expected to make headlines. On Tuesday, the number of job openings in April is anticipated to decline to around 8.36 million as employers return to more typical hiring patterns. Following that, on Wednesday, the private payroll firm ADP will release its monthly employer survey for May, predicting an addition of around 190,000 jobs, consistent with the April figure.
Comerica Bank economists Bill Adams and Waran Bhahirethan wrote on Monday morning, “The May jobs report will likely show payroll employment growth holding under 200,000 for a second month in a row, with the unemployment rate holding steady at 3.9%. That’s not high, but you can see the difference between it and the half-century low of 3.4% reached in the first half of 2023 without your glasses on. Average hourly earnings growth likely moderated further in year-over-year terms. Job openings, released at a one-month lag to the level of employment, likely fell again in the latest release for April.”
The anticipation of the May jobs report comes after markets experienced a sell-off due to news of slower consumer spending and signs of a softening economy. While a key inflation metric favored by the Fed showed continued slowing in inflation, it also recorded a 0.1% month-over-month decline in inflation-adjusted spending.
“We expect disinflation will make sufficient progress to allow rate cuts to begin this year,” noted BCA Research in a client note on Monday. “National rental markets continue to ease, a trend that will drag shelter inflation lower. Wage growth is also decelerating in line with leading wage growth indicators. Concurrently, consumer credit has become scarce and excess savings have dwindled. We thus expect consumers will put less upward pressure on aggregate demand growth in the coming quarters.”
In other economic developments, the oil-producing nations of OPEC+ announced plans to maintain their production cuts through the end of the year. This move is likely to prevent oil prices from dropping further, contingent on how demand trends evolve for the rest of 2024. After peaking at around $95 a barrel following the October 7 attack by Hamas militants on Israel, oil prices have since fallen below $80 a barrel.
The May jobs report will provide critical insights into the U.S. economy’s trajectory and inform potential policy responses by the Federal Reserve. A stronger-than-expected report could reinforce the resilience of the labor market, while weaker numbers might amplify concerns about an economic slowdown and its potential ripple effects on consumer spending and overall economic health.
This complex economic landscape highlights the delicate balance the Federal Reserve must maintain in its policy decisions. Lowering interest rates could stimulate economic activity and alleviate some of the financial pressures on consumers. However, it could also stoke inflationary pressures if not managed carefully.
The labor market’s performance in May, amid these broader economic trends, will be crucial in shaping expectations for the remainder of the year. It will offer a clearer picture of whether the economy can sustain its current growth trajectory or if more significant adjustments will be necessary to navigate potential downturns and ensure long-term stability.